The chairman of the Federal Reserve, Jerome Powell, testified before the House Financial Services Committee on Wednesday and indicated that a rate cut would be coming, but he did not say when that would happen.
Although the Federal Reserve has indicated that it will cut interest rates at some point this year, Powell noted that inflation is still above the Fed’s target of 2%. The Federal Open Market Committee is walking a fine line between cutting rates too soon — which could hinder the slowing of inflation — or cutting them “too late too little,” which could adversely affect the economy and labor market.
The Fed rate has dropped over the last year but remains at a 23-year high, as reported by CBS News. A rate cut to the benchmark index would lead to lower consumer credit rates over time. Many financial experts believe the first rate cut could happen in June.
“The waiting game continues,” Ian Shepherdson, chief economist with Pantheon Macroeconomics, said in a research note on Powell’s testimony, per CBS. “Everything else in the written testimony is boilerplate about progress on inflation over the past year and the strength of the labor market, though Mr. Powell does allow himself a note of self-congratulation — and a subtle jab at [American economist] Larry Summers and others who argued that the Fed would have to kill the labor market in order to bring inflation down.”
Powell delivered his remarks on the first day of a two-day scheduled hearing. CBS reported that inflation rates continue to rise, affecting consumers through higher prices. Fed data released this week shows that inflation has eased to 3.1%, down from 3.5% in December and significantly lower than the 9.1% mark hit in June 2022.
Bright MLS chief economist Lisa Sturtevant told CBS last month that consumers are still feeling the effects of rising prices. She noted that January’s food prices are up 25% over 2020, and rent is 22% higher than in 2020.
“Inflation is generally moving in the right direction, down significantly from its peak of 9.1% in June 2022,” Sturtevant said. “But it’s important to remember that a lower inflation rate does not mean that prices of most things are falling— rather, it simply means that prices are rising more slowly.”
The Fed increased the benchmark rate 11 times in the last two years to stave off inflation. The increase made it more costly for homebuyers and businesses to purchase property.
